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Africa Sting – Not Guilty Pleas

Today was arraignment day for the Africa Sting defendants in Judge Richard Leon’s courtroom in the Federal District Court in Washington D.C.

During the arraignment, the defendants pleaded not guilty.

For a first hand account of what transpired in Judge Leon’s courtroom, see here for Christopher Matthew’s piece at Main Justice.

Beefing Up the Budget

DOJ recently announced (here) its FY 2011 budget request. The budget request includes a $235 million increase over the FY 2010 enacted appropriation, “including 708 new positions (143 agents and 157 attorneys) to restore confidence in our markets, protect the federal treasury and defend the interests of the U.S. Government.”

Included in the $235 million figure (see here) is “$550,000 and 5 positions (3 attorneys) to increase [the Criminal Division’s] capacity prosecute crimes of financial and mortgage fraud, procurement and grant fraud, and violations of the Foreign Corrupt Practices Act.”

Not exactly a figure that “knocks one’s socks off,” but nevertheless consistent with repeated DOJ statements about a ramp-up in FCPA resources and enforcement.

The SEC’s budget justification (here) does contain any FCPA specific language.

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Perhaps it’s because my favorite show, Mike Rowe’s Dirty Jobs on the Discovery Channel, recently profiled this company (see here). In any event, PBS&J continues to make news and continues to intrigue even though the whole issue, at least it seems, involves a relatively minor potential FCPA issue. This week, Florida media (here) reports that the company’s CEO, John Zumwalt, has resigned. The article notes that up until summer 2009, Zumwalt was also the President of PBS&J International, the subsidiary that has become the focus of an FCPA internal investigation. See here for prior posts. According to the article, Zumwalt will continue as Chairman of the company’s board. Should PBS&J become the focus of an enforcement action, it will be interesting to follow as the company has millions of public sector contracts.

Blackwater In Hot Water

The New York Times (here) reports that the DOJ “is investigating whether officials of Blackwater Worldwide tried to bribe Iraqi government officials in hopes of retaining the firm’s security work in Iraq.”

According to the Times, the DOJ’s fraud section open an investigation “late last year” to determine whether Blackwater employees violated the FCPA. The investigation follows a November 2009 times article (here) which first raised questions about Blackwater’s (now known as Xe Services) conduct in Iraq. That article suggested that the alleged payments at issue were made to Iraqi “foreign officials” to help secure an operating license the company needed to continue doing business in Iraq.

As noted in a prior post (here), this case is interesting on several levels.

First, the case (from an FCPA antibribery perspective) would seem to hinge on the FCPA’s “obtain or retain” business element, and is another example of the post-Kay explosion in enforcement actions in which alleged improper payments were made to help secure foreign government licenses, permits, etc. An interesting wrinkle to this analysis is that the Iraqi license was apparently needed so that Blackwater could retain its contract with the U.S. State Department – not with a foreign entity as is usually the case.

Second, rarely if perhaps ever, has an FCPA inquiry focused on the conduct of a company so intertwined with U.S. government agencies (State Department and CIA) operating in a war zone.

A Double Standard? Part II

A government official has over $7,000 of expenses paid for by an organization hoping to establish a personal connection with the official and seeking access to the official to educate him on a multibillion dollar program favored by the organization.

The same organization spends over $20,000 for baggage-handling tips, alcohol, snacks, refreshments, and other “trip supplies” for another government official.

Sounds like the organization has some FCPA issues, right?

Wrong.

Why?

Because the government officials involved are not “foreign officials,” but rather U.S. government officials and the organization is the U.S. military. (See here for the recent story from the Wall Street Journal).

According to the article, members of Congress are not required to be disclose such expenses and the information is from military expense records obtained through a Freedom of Information Act request.

While not a perfect parallel to an FCPA enforcement action, the above, as well as “A Double Standard Part I” (see here) raise the question of whether there is a double standard.

Will a U.S. company’s interaction with a “foreign official” be subject to more scrutiny and different standards than its interaction with a U.S. official?

Do we reflexively label a “foreign official” who receives “things of value” from an organization with a business interest as corrupt, yet when a U.S. official similarly receives “things of value” from an organization with a business interest we merely say “well, no one said our system is perfect”?

Is there any difference between the bottles of wine given to the Thai “foreign officials” in the UTStarcom, Inc. matter (see here para. 23 of the complaint) and the bottles of wine and alcohol given to the U.S. officials by an organization with a business interest pending before the U.S. officials? Is there any difference between the sightseeing trips provided to the Chinese “foreign officials” in the UTStarcom matter and the corporate funded sightseeing trip by the U.S. official discussed in Part I?

One is a crime and the other is … well what is it, just the way things get done?

As always, your comments are welcome.

Potpourri

A Friday roundup of recent FCPA events.

An FCPA Sentencing Trend?

As noted in yesterday’s DOJ release (here), two former executives of Willbros International Inc. (a subsidiary of Houston-based Willbros Group Inc.) were sentenced for their roles in a conspiracy to make improper payments to “foreign officials” in Nigeria and Ecuador.

Jason Edward Steph was sentenced to 15 months in prison and Jim Bob Brown was sentenced to 366 days in prison.

For more on the Willbros matter, see here and here.

The DOJ’s sentencing recommendations appear to be sealed, but one can assume, given the “light” sentences, that perhaps the DOJ likely sought sentences greater than those issued by District Court Judge Simeon Lake.

If so, this would appear to continue a trend of judges sentencing FCPA defendants to prison sentences less than those recommended by DOJ.

For instance, in Frederic Bourke case, a case which involved a “massive bribery scheme” according to DOJ, Judge Shira Scheindin rejected the 10-year prison sentence proposed by DOJ and sentenced Bourke to 366 days in prison. (see here). In sentencing Bourke, Judge Scheindin is reported to have said “after years of supervising this case, it’s still not entirely clear to me whether Mr. Bourke is a victim or a crok or a little bit of both.”

With several FCPA sentencing dates on the horizon, this apparent trend will be an issue to watch.

See here for local media coverage regarding the sentences.

Kozeny’s Tan Not in Jeopardy

While Bourke (see here) prepares his appeal, Viktor Kozeny, the alleged master-mind of the scheme to bribe officials in Azerbaijan in connection with privatization of the state-owned oil company, will be staying put in The Bahamas as an appellate court again rejected DOJ’s extradition attempts.

As noted in the recent Bahamian Court of Appeals decision (here), Kozeny, a Czech national, has been living in The Bahamas since 1995 and has not departed the country since 1999.

The opinion notes that there is no dispute “that there was a conspiracy to corrupt the Azeri officials and that such officials were paid money, given gifts and provided shares in certain companies under the control of [Kozeny] without payment; and had certain medical procedures paid for them by [Kozeny].

Even so, the court concluded that while The Bahamas did indeed have a bribery/corruption statute, it applied only to bribes within The Bahamas or given to a Bahamian public officer. Thus, because Kozeny’s conduct would not violate Bahamian law, the appellate court upheld the lower court’s denial of the extradition request.

For additional coverage (see here and here and here).

According to these reports, the decision may be appealed to London’s Privy Council pursuant to Bahamian legal procedure. Kozeny’s U.S. lawyer is quoted as saying “enough is enough” and U.S. prosecutors should finally accept the fact that Kozney, a non-U.S. citizen, could not violate the FCPA as it existed in 1998 – the year in which the bribe scheme perhaps ended – although, as noted in the opinion, the U.S. alleges that the bribe scheme continued into 1999.

Why is this relevant?

Because the FCPA was amended in 1998 to include, among other provisions, 78dd-3 which applies the antibribery provisions to “any person” (i.e. foreigners) “while in the territory of the U.S.” from making use of the mails or any other means or instrumentality of interstate commerce in furtherance of an improper payment.

The SFO Continues to “Step-It-Up”

Today, the U.K. Serious Fraud Office (the functional equivalent of the DOJ) issued a release (here) indicating that a former BAE agent has been charged with “conspiracy to corrupt” for “conspiring with others to give or agree to give corrupt payments […] to unknown officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely SAAB/Gripen fighter jets, by BAE Systems Plc.”

For local media coverage of the charges (see here).

With a new Bribery Bill expected in the U.K. by years end, the SFO continues to “step-it-up” (see here for more on the SFO).

Disclosing FCPA Compliance

Public companies dislose FCPA issues all the time. Rarely though do the disclosures concern issues other than internal investigations and potential enforcement actions.

Accordingly, two recent SEC filings caught my eye.

China MediaExpress Holdings, Inc. (a Delaware company) recently disclosed (here) that it:

“[e]ntered into a securities purchase agreement with Starr Investments Cayman II, Inc. Under this agreement, Starr will, subject to various terms and conditions, purchase from the Company 1,000,000 shares of Series A Convertible Preferred Stock and warrants to purchase 1,545,455 shares of the Common Stock of the Company for an aggregate purchase price of US$30,000,000.”

One of the conditions was that the company “shall have adopted a program with respect to compliance with the US Foreign Corrupt Practices Act” and a post-closing covenant obligates the company to “implement a program regarding compliance with the US Foreign Corrupt Practices Act not later than April 30, 2010.”

Cardtronics Inc. (an operator of ATM networks around the world) (here) recently disclosed (here) that:

“On January 25, 2010, the Board of Directors by unanimous vote approved three management proposed modifications to the Company’s Code of Business Conduct and Ethics. The modifications as approved by the Board include: (i) adding a section that addressed compliance with the Foreign Corrupt Practices Act and International Anti-Bribery and Fair Competition Act of 1998.”

Costa Rica Joins the Club

Last, but certainly not least, Costa Rica recently announced a first … the first time a foreign corporation has paid the government damages for corruption.

As noted here, telecom company Alcatel-Lucent recently disclosed a $10 million payment to settle a corruption case in Costa Rica in which it was accused of paying kicbacks to former Costa Rican President Miguel Angel Rodriguez (and others government officials) in return for a 2001 contract worth $149 million.

There has been FCPA/corruption issues on both sides “of the hyphen” as noted here in this recent Main Justice article.

And with that, have a nice weekend.

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